Recently, equity market indices have been hitting new all-time highs. Some traders are even expressing frustration, claiming the markets are irrational and predicting a correction. Are investors overreacting in this market and pushing the indices higher? Reference examined the investor overreaction. The study is grounded in the widely recognized …

A stop loss serves as a risk management tool, helping investors limit potential losses by automatically triggering the sale of a security when its price reaches a predetermined level. This level is set below the purchase price for long positions and above the purchase price for short positions. By implementing …

Moving averages are a useful tool in investing. They smooth out price data over a specific period, providing a clearer trend perspective. The most common types are the simple moving average (SMA) and the exponential moving average (EMA). Investors often use moving averages to identify trends and filter out short-term …

In previous posts, we discussed the momentum phenomena in the options market. In essence, evidence suggests that delta-hedged straddle option positions exhibit momentum. This means that firms whose options performed well in the past 6 to 36 months are likely to experience high option returns in the next month. Reference …

A market shock, exemplified by the 1987 crash, denotes a sudden and severe disturbance in financial markets, leading to significant disruptions and abrupt changes in asset prices. This event can have a lasting impact. For instance, prior to the 1987 crash, volatility remained flat. Post the crash, there emerged a …

Forecasting stock prices is a challenge due to the non-stationary nature of price time series and the noisy data inherent in these price sequences. Linear regression was a frequently used prediction method, but recent advancements in computing technologies have given rise to more sophisticated approaches like Long Short-Term Memory (LSTM), …

Stock momentum refers to the tendency of assets that have been performing well to continue outperforming others over a certain period. This phenomenon is rooted in the belief that existing trends are likely to persist. A reversal occurs when the direction of a price trend shifts, transitioning from an upward …

The weekend (or Monday) effect in the stock market refers to the phenomenon where stock returns exhibit different patterns on Mondays compared to the rest of the week. Historically, there has been a tendency for stock prices to be lower on Mondays. Various theories attempt to explain the weekend effect, …

Dividend yield is a financial metric that provides insight into the income generated by an investment in the form of dividends, relative to its market price. Expressed as a percentage, the dividend yield is calculated by dividing the annual dividend per share by the current market price per share. This …

Beta is a financial metric that measures the sensitivity of a stock’s returns in relation to the overall market. It provides insights into how much a stock tends to move in response to market fluctuations. A beta of 1 indicates the stock generally moves in line with the market, while …